U.S. Must Respect Overseas Swaps Rules, CFTC’s Wetjen Says

By Silla Brush -
Sep 13, 2012

The U.S. Commodity Futures Trading
Commission, facing concerns from European and Asian regulators
about the scope of new swaps rules, should rely on overseas
authorities when possible, Commissioner Mark P. Wetjen said.

“In light of the commission’s limited resources, efficient
regulation through deference to comparable regulation just makes
sense,” Wetjen, one of three Democrats on the five-member CFTC,
said today in remarks prepared for delivery at an International
Swaps and Derivatives Association Inc.conference in New York.

The CFTC’s proposal for the international reach of its
Dodd-Frank Act rules needs more clarity, and it is “critically
important” that the agency rely on a process of letting firms
comply with new rules by substituting adherence to regulations
enacted abroad, he said.

‘Substituted Compliance’

The CFTC’s interpretive guidance allowed for so-called
substituted compliance for branches, subsidiaries and other
overseas affiliates of U.S. banks when foreign jurisdictions
have comparable rules.

‘‘Permitting substituted compliance is not tantamount to
abdicating the commission’s responsibilities,” Wetjen said in
his prepared remarks for the ISDA conference. “Should a
comparability analysis reveal a gap in another jurisdiction’s
regulations that poses material risk to our markets, our
financial institutions, or our economy, the commission reserves
the right to apply Dodd-Frank to swap activities abroad” that
have a direct and significant effect on the U.S., he said.

The Hong Kong Monetary Authority, Monetary Authority of
Singapore and the Comissao de Valores Mobiliarios, Brazil’s
national securities regulator also submitted letters.

Rules defining U.S. entities in the trades are overly broad
and could lead to regulatory overlaps, officials with the
European Commission and the U.K.’s Financial Services Authority
said in letters dated Aug. 24.

“This will lead to duplication of laws and to potentially
irreconcilable conflicts of laws for market operators,” said
Jonathan Faull, the European Commission’s director general for
financial services. “EU and U.S. firms could face permanent
legal uncertainty if this issue is not resolved.”